Last week, CalPERS and CSDA held successive webinars related to COVID-19 and the latest updates for special districts related to public employee pensions and retired annuitants. The CalPERS conference call for employer stakeholders was attended by over 2,100 individuals and the CSDA webinar is now available on-demand.
On the CalPERS stakeholder call, members of CalPERS’ executive team including CEO Marci Frost, Deputy Chief Investment Officer Dan Bienvenue, Chief Actuary Scott Terando, CFO Michael Cohen, and Chief Employer Account Manager Renee Ostrander, updated participants on the status of the fund, the potential for rate increases, and answered questions of those on the call.
CEO Marci Frost emphasized CalPERS’ focus on top priorities that included communication with members, member and employee safety, managing investments, serving members and employees, and paying benefits.
The CalPERS team informed those on the call that, since January, CalPERS has lost over $67 billion dollars, has $355.62 billion in current assets, is 63% funded, and, if the fiscal year ended today, the fund would experience a negative four percent return for the year (well below the seven percent target). Prior to the COVID-19 events, the fund was experiencing a six percent gain on the year. However, on a positive note, the CalPERS team said that actions taken over the last several years have left them better positioned to weather the downturn than in 2008.
Since the last economic recession, CalPERS has acted to reduce the discount rate as well as shorten the amortization periods from 30 years to 20 years on gains and losses. These changes have provided greater liquidity in the fund and reduced volatility, which they believe is key to minimizing the long-term negative impacts of the recent downturn in market returns.
While CalPERS provided some positive messages on the potential impacts of COVID-19, the main takeaway was that things are going to be tough for employers going forward, but it could have been worse. Public agency employers should expect rate increases to cover the losses from the 2019-2020 Fiscal Year to kick in starting in 2022-2023, with a five-year ramp-up period until the full extent of the rate increase will be felt in 2026-2027. These anticipated increases would then last for 15 years. The necessary rate increases will be determined following the close of the fiscal year and provided to employers in their annual employer valuations in the subsequent months.
CalPERS acknowledged that some employers will have a hard time making payments and that employers experiencing hardships should contact CalPERS to determine if they may qualify for hardship modifications to their payments, which might include changing their amortization period to cover the losses from 20 to 30 years.
When asked if CalPERS would be considering a further reduction in the discount rate to lower it below the seven percent expected return, they responded by saying they do not have any immediate plans to do so, but that they are going to continue with the Asset Liability Management (ALM) process, which was scheduled to begin in July. The ALM process is the traditional way that CalPERS determines any necessary changes to the discount rate and is undertaken every four years. It just so happens that they are currently at that four-year cycle to begin the process again this year.
The team at CalPERS answered additional questions related to the possible suspension of cost-of-living adjustments (COLAs) or other potential costs savings measures CalPERS may undertake. They indicated “everything is on the table,” however, COLAs are set by the State Legislature and they do not believe it would be appropriate for them to advocate one way or another on that issue.
Presentation slides from the call can be accessed here, and the full call is available on CalPERS YouTube channel.
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